CBO Report Ramps Up Budget Battle

The release last week of new deficit and debt figures for the federal government confirmed what most analysts expected, but not what many Members of Congress anticipated.

The Congressional Budget Office projection of $1.5 trillion in deficit for the current fiscal year, FY11, and forecasts of $1 trillion for FY12 put the Republican House, especially, in a bind.

Simple arithmetic has already revealed to even the most ardent of deficit warriors that the $100 billion in cuts they want in the current fiscal year cannot occur. The fact that leadership has had to deliver this message means that Speaker John Boehner and House Budget Committee Chairman Paul Ryan have to offer a plan of truly large spending cuts in the near future in order to keep their caucus from fracture.

At stake, of course, is passage of the necessary increase in the federal debt ceiling. That ceiling is now $14.29 trillion, a number that surely will require a vote by spring. Without a concrete plan to save $100 billion this year, House leadership must concoct a combination of “process reforms” and spending cutbacks.

The House intends to take up the current fiscal year continuing resolution Feb. 14, two weeks ahead of the scheduled expiration of the CR, although what an early vote accomplishes is unclear. The Senate will hum and haw before it passes the CR and a conference between the competing visions of the House Republican conferees and the Senate Democratic conferees fundamentally conflict.

Rumblings of a government shutdown over the CR, or over an increase in the debt ceiling grow louder. Among budget analysts, a growing consensus anticipates no concrete deficit/debt plan during the next 2 years, in large part because the president has so far been unwilling to outline even the sketch of a multi-year approach.

Criticism of the president from the editorial and economics writers of the Washington Post, New York, Times, Financial Times, and The Economist falls on deaf ears. After all, the folks who read those publications comprise a tiny minority of voters–most of whom consider job creation much more imperative than deficit reduction.

Thus a classic confrontation develops–the two great four-letter words in Washington, D.C., “jobs” and “debt” battle it out. History shows conclusively that jobs almost always wins.

If that is the outcome of the battle this time, then congressional Republicans, and Tea Party grassroots activists’ anger will explode in a form not yet predictable.

35 Comments so far ↓

The Republicans own the House now. “Explosions”, hopefully metaphorical ones, won’t get them anywhere without actual policies, and the only policies I’ve seen so far from the GOP are small-bore and focus on things like shutting down the D.C. subway system — big disruptions without saving that much money.

> Among budget analysts, a growing consensus anticipates no concrete
> deficit/debt plan during the next 2 years, in large part because the president
> has so far been unwilling to outline even the sketch of a multi-year approach.

Where is the incentive to do anything before the 2012 elections?
To get rid of the deficit, the U.S. government needs to raise taxes and slash spending at the same time. The GOP successfully blocked the former a few months ago. Careless gov’t spending cuts will hurt consumers (e.g. public sector employees and the poor) and by extension jeopardize the recovery as well as Obama’s reelection campaign.
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It will be interesting to see how this plays out. The Tea Partiers (Rand Paul, Jim DeMint & co.) clearly don’t give a damn if their blackmail hardball tactics cause a government shutdown followed by a double dip recession. The GOP business elite won’t be so sanguine, though.

More important than the deficit is where is Boehner’s and the GOP’s jobs plan? What does the GOP want to do to get the unemployment rate down? So far we have got nothing. All they want to talk about is healthcare and nobody cares about healthcare.

And not one bill to do anything about jobs or innovation or improving our infrastructure to compete with China, Singapore, India, Brazil or Germany. Wow, these GOP’ers are really on the ball. The American people voted jobs and we got idiotic health care repeal bills.

I’m sorry, but was that a photo of a Republican Paul Ryan waving a CBO report around? I’d cite how many times Republicans bashed the CBO during the healthcare debate but I don’t think there are enough characters allotted in this text frame. I guess I knew this was coming, just maybe not while they are still trying to undo healthcare reform, which the CBO says would increase the debt 230M over the next 10 years. Not going to talk about that CBO report now are we?

Thus a classic confrontation develops–the two great four-letter words in Washington, D.C., “jobs” and “debt” battle it out. History shows conclusively that jobs almost always wins.

Well, when unemployment is the worst it’s been in a generation, and there’s no sign that bond rates are moving against us, that’s when it makes sense for jobs to “win” that debate. So let’s hope that’s how it goes in the short term.

Incidentally, Paul Ryan’s Roadmap, even though he gamed the system by having the CBO evaluate his spending proposals but not his tax proposals, projects deficits as far as the eye can see– well, until 2063, at least, with the debt continuing until 2080, when Ryan will be a frozen head in a lab waiting for some John Galt to reanimate him. See page 84-85 of the Roadmap here (long pdf): http://www.roadmap.republicans.budget.house.gov/UploadedFiles/Roadmap2Final2.pdf

Of course, like the rest of the GOP, Ryan voted for Medicare Part D (deficit-financed, unlike the deficit-reducing health insurance reform Democrats enacted last year). And like the rest of the GOP, he just refused to allow tax rates to return to where they were the last time we had a functioning economy, in the 1990s. That’s because Republicans don’t care about the deficit. Just ask Dick Cheney! He’ll tell you!

It’s so nice to know someone else read Ryan’s Roadmap besides me. Needless to say, like you, I was more than a little disgusted by it.

If the GOP were serious about deficit reduction, they’d immediately begin working on tax reform using the Wyden- Gregg proposal as their starting model. In addition, they’d simultaneously work on competitive growth as a way to help grow our way out of the deficit. There’s no way to cut our way to economic health. It’s not fiscally possible. Ask any CEO or CFO. Third is taking on Medicare/medicaid expenses. Somehow, someway, the cost of health care must come down. It will bankrupt the federal government as well as continue to cause the US domestic industries to be uncompetitive.

I read through Ryan’s Roadmap as well. First, I’ll say that I applaud him for being one of very few people to actually develop a fairly detailed plan to eliminate the deficit and (eventually) pay off the federal debt. The worst legacy of Reagan was the national shift from being the world’s biggest creditor to the world’s biggest debtor. We’ve been starving our fiscal body for thirty years and pretending that we can keep collecting less money than we spend.

That said, I disagree in large with the actual content of the Roadmap. The tax reform proposal has all sorts of flaws, and just saying “we can adjust the marginal rates later” doesn’t cut it in my book. His health care proposal resembles what Switzerland, Germany, and the Netherlands have done to achieve universal coverage, but shifting to a defined contribution model just means we’re going to continue rehashing the Medicare SGR battle year after year after year. The Social Security proposal, ironically, is the one I find the most good in, but I don’t see how running two parallel systems is a good idea, and his plan runs significant deficits until the people who stick with the traditional insurance program all die off. And ignoring the problems that have come along with programs that fall under discretionary spending, like defense and the War on Drugs, completely ignores their budgetary impact.

I used to think Paul Ryan was really focused on reducing the deficit and recovering our fiscal health even if he ideologically disagreed with the content of the implemented plan. Then he voted against the Bowles-Simpson plan. Partisanship apparently comes before fiscal responsibility.

The GOP may talk a good game, but they could care less about the unemployed and putting people to work. They frankly could care less about the economy or even the deficit and debt. They mostly only care about the special interests who get them elected with campaign cash and pay their salaries when they leave politics. There is absolutely no evidence that the GOP cares about unemployment, jobs, the economy, the deficit and the debt. If you can show me the evidence that they do care, I would like to see it. They are just a hollow shell. A fraudulent political party that are more about self interests.

Yep, but their jobs are replaced in the private sector, and moreso by virtue of the fact that government sector compensation is inflated.

“2. Reduce government purchases of goods and services from the private sector, reducing business income, leading to layoffs. More people out of work.”

Insofar as those government purchases are paid with printed money, they lead to inflation, which will put people out of work. Moreso, reducing government purchases simply reduces government jobs. To which, see above.

“It’s a simple equation: cutting spending = putting people out of work.”

If your equation is simple, then the best thing we can do is have the government spend trillions of dollars immediately. Is this what you propose?

“Not the greatest suggestion in a period of high unemployment – unless you simply don’t care about the unemployed.”

Or you understand economics at even a fundamental level.

Here’s what’s happening here. The left is noting that the Republicans are going to have to make politically unpopular choices if they want to cut spending. This is valid.

Having resolved the above argument, the left is now conflating the political problem of spending cuts with the real problem of spending cuts. This is not valid.

Given this economy, please elaborate on your response to point #1. Under previous decades and normal full employment levels, your assertion would be true. Now, not so much.

In addition, can you provide any factual data that shows federal workers have an inflated income? As far as I know, the only inflated federal incomes are the thousands of private contractors.

On point #2, normally you would be right, but again, these are not normal times. We’re in a whole new economic model, given the global competition. Moreover, for the last 2 years, we’ve been in a deflation mode. Inflation still is not a huge worry. Creating jobs and jobs growth – economic growth – is the greater problem because the deficit will never be solved without revenue growth which translates into jobs growth.

1) The federal government workforce is currently at about an all time low relative to U.S. population. There is no need to layoff any government workers.

U.S. Government workforce is shrinking relative to the U.S. population:
1962: 2.48 million feds, or 13.3 percent of a total population of 186.5 million
2010: 2.65 million feds, or 8.4 percent of a total population of 310.3 million

There is no evidence that getting the private sector to do the work of the federal government actually saves any money whatsoever. There are no significant examples. There are plenty of examples of say military contractors like BlackWater ripping off the U.S. government for big money or FEDEX using the U.S. postal service because they cannot profitably deliver packages to most of rural America. Studies mostly tell us that what simple logic dictates which it is impossible for the private sector to deliver the same service for less and make a profit as well.

Here is a conclusion from a major report:

“In conclusion, we found privatization to be, at best, a disruptive, socially destabilizing, and ultimately harmful method of cost saving. At its worst, privatization can actually increase costs, lower the quality of services, reduce public accountability, and marginalize citizen involvement in the democratic process.”

By the way federal employees are not compensated more than the private sector or their salaries are inflated as you say. In fact, recent studies have told us the opposite, that federal employees are largely underpaid. You are just repeating a conservative myth or talking point, which is not at all backed up by the facts. If you look at the apples-to-apples comparisons and also factor out the military, which has seen some significant pay raises recently, then federal employees are actually paid on average 25% less than equivalent private sector jobs.

“The federal Office of Personnel Management has long cited figures that suggest an opposite reality — that federal workers in fact suffer from a pay gap of more than 25 percent compared to the same workers in private firms.”

“According to the Pay Agent — a top-level interagency council that advises the president on federal pay policy matters — federal employees earn anywhere between 27% and 69% less than their non-federal counterparts, depending on where they work. Each year, these pay gap figures, which are derived from Bureau of Labor Statistics surveys, are used to calculate the locality pay increases given to federal employees.”

“The pay gap is actually much larger if you include stock options, routine five and six figure bonuses, company vehicles, paid life insurance, health and country club memberships, season tickets/passes, huge expense accounts, and multiple other freebies. 0% of highly skilled and educated private sector lawyers, accountants, engineers, scientists, and health professionals are flocking to the federal government for jobs.”

There has been a lot of BS written in the press and on right-wing blogs about relative federal employee pay, but most articles do not look at true apples-and-apples comparisons or provide little actual proof to support their arguments. The Federal government generally has a higher proportion of highly educated and skilled people, more than you see in the general economy, so these highly educated and skilled people need to get paid an appropriate level.

2) Despite all the fiscal stimulus in the last two years there is no evidence of inflation anywhere. In fact, economists have been more worried about deflation. I don’t think you understand basic economics. You are not creating inflation if government is simply filling in for the missing demand or hole in spending from the private sector. Government is just filling in the output gap created by the recession.

“If your equation is simple, then the best thing we can do is have the government spend trillions of dollars immediately. Is this what you propose?” this statement also suggest a lack of understanding on your part about what has actually happened. The stimulus bill, which has been very successful, was exactly that. It was an attempt to fill in the output gap created by the recession. Economists calculated that the output gap created by the recession was about $1.4 trillion, so the Obama government chose to cover about half of that gap or just over $800 billion in stimulus spending. They thought that would be enough to kick start the economy. Many have argued that the stimulus should have been higher to more fully cover the output gap. So to answer your question, yes the government should have stimulated the economy, as it did and in fact maybe should have done a bigger stimulus. That is what almost all industrial countries around the planet did.

kevin47, here is a question for you? Why do we need to make any spending cuts, given that unemployment is so high? Spending cuts will result in higher unemployment and potential a double dip recession, like what we are seeing in the UK.That could be more costly to the economy and over the medium term actually cost the economy more than the spending does. With more than 40% of the current deficit coming from a decline in tax revenues from the recession, wouldn’t it be smarter to keep the economy growing? With a strong economy we will simply grow our way out of the deficit, just like we largely negatively grew our way into the deficit. Lump this with the falling of the emergency spending and as the CBO says in their latest report the deficit will naturally decline to the $500 billion area, which will be back down to about 3% of GDP, which is very manageable and close to the historic norm. In the last 50 years the country has had a deficit every year except one year under Nixon and four years under Clinton, so there is no need to completely eliminate the deficit. Deficit spending in itself is not wrong, as long as you can afford it, which the U.S. can.

They could have enacted any policies that would have indicated as much when they held all three branches of government; or they could propose policies now that reflect a desire to, say, decrease the deficit. They have never done either, not in the last 30 years.

Wait, that’s a slight exaggeration. George Bush Sr. cared about the deficit. And was therefore hated by Republicans.

The same old story since 1980: cut taxes for those who don’t need them above all else. Deficits and/or job creation for republicans have always taken a back seat to tax cuts for the affluent. Creating deficits has always been the plan of the “starve the beast” plutocrats. Now let see if they have the courage to take down the hated “socialism” that they have loathed since FDR before the Tea Party lunatics know what’s hit them.

A pair, Congress, grow one. Any Congress person that is not afraid of losing their job due to decisions they make, should be the first to go. SS, cut it. Medicare/caid, cut it. Military, cut it. And, watch the Tea Partiers choke on their own words should they oppose the cuts. You want to run the country like a business, this is how you do it. These are your nations biggest 3 costs, any good executive would cut them first. You want smaller government, you got it. You want budget cuts, you got it. You want deficit reduction, you got it. You want your social security check, you…well, maybe don’t get all of it.